Monday, January 4, 2010

Samuelson Et Al. Goofed on Soviet Union Because of Their Models, Not Their Politics

Alex Tabarrok has an interesting post today on how the mainstream textbook authors were far too generous in their predictions about Soviet GNP back in the day:

First, an even more off-course analysis [than in Samuelson's textbook] can also be found in another mega-selling textbook, McConnell's Economics (still a huge seller today). Like Samuelson, McConnell estimated Soviet GNP as half that of the United States in 1963 but he showed that the Soviets were investing a much larger share of GNP and thus growing at rates "two to three times" higher than the U.S. Indeed, through at least ten (!) editions, the Soviets continued to grow faster than the U.S. and yet in McConnell's 1990 edition Soviet GNP was still half that of the United States!

A second case of being blinded by "liberal" ideology? If so, Levy and Peart throw another curve-ball because the very liberal even "leftist" texts of the time, notably those by Lorie Tarshis and Robert Heilbroner did not make the Samuelson-McConnell mistake.

Tarshis and Heilbroner were more liberal than Samuelson and McConnell but offered a more nuanced, descriptive and tentative account of the Soviet economy. Why? Levy and Peart argue that they were saved from error not by skepticism about the Soviet Union per se but rather by skepticism about the power of simple economic theories to fully describe the world in the absence of rich institutional detail.

To make their predictions, Samuelson and McConnell relied heavily on the production possibilities frontier (PPF), the idea that the fundamental tradeoff for any society was between "guns and butter." Thus, in the 1948 edition Samuelson wrote:

The Russians having no unemployment before the war, were already on their Production-possibilities curve. They had no choice but to substitute war goods for civilian production-with consequent privation.

Note that Samuelson assumes all countries and economic systems are efficient (the Russians are "on" the curve) only the choice of guns versus butter differs. When the war ended, the fundamental tradeoff became one between investment and consumption and since the Soviets invested a greater share of GNP they would naturally consume less but grow faster. Moreover, since the Soviet's had solved the unemployment problem they were, if anything, more efficient than the U.S. (here we see the Keynesian influence).

Slightly off point: I used McConnell and Brue's Economics for my principles courses. It was terrible. Especially when I compared it to Parkin and Bade's (two Canadian economists) book which my friend had from another school. I'm using Varian for my intermediate micro, and while it's pretty good, I don't think it matches Parkin and Bade.

Does this explain why Samuelson lied about Hayek and The Road to Serfdom, and why Samuelson lied to Hayek personally when he promised to correct and retract his false and libelous claims about Hayek and his book?

Does it explain why Sameulson viciously attacked Laffer on a matter of econometric technique on which Samuelson was utterly unqualified?

Samuelson has a lifetime record of lefist hack behavior of the Krugman sort on which to be judged. Context free analysis isn't very helpful. Take a look at Boettke's Coordination Problem blog for context on this isse left out y thenauthors you cite.